MORGAN STANLEY: We May Get A New Wave Of Global Central Bank Easing In The Coming Weeks

Fels said discussions among those in attendance were dominated by three topics: (1) the battle in D.C. over the debt ceiling; (2) what a Janet Yellen Federal Reserve means for markets and the economy; and (3) the problems - both structural and cyclical - that have propelled emerging-market economies into the limelight as of late.

"Janet Yellen's nomination to the Fed chair on Wednesday was widely greeted with relief as it will likely ensure that the Fed's monetary policy stance will remain accommodative for longer," says Fels.

Yet Fels thinks the meetings left a strong impression on global policymakers "that the world remains a risky place," a sentiment that could trigger a new round of central bank easing in the coming weeks and months.

In the note, he writes:

While many EM officials sounded relieved both about the Fed's non-tapering decision and Janet Yellen's nomination, which was seen as contributing to a further stabilisation in their currencies and local bond markets, the main focus of most EM-related debates was on the the structural growth problems that have become much more apparent in many EM economies. Based on many conversations in the last few days, it's clear that Manoj Pradhan's and my diagnosis of 'broken EM growth models' from last year has now become consensus among many investors and officials. Yet, EM policy-makers were keen to point out that they realise the need for structural reforms to transition to new growth models and expressed confidence that they have the tools available to cope with higher market volatility if and when the Fed finally starts to taper.

As I see it, many policy-makers are likely to return from Washington with a strong impression that the world remains a risky place, particularly given the uncertainty about US fiscal policy in the near term and the medium- and longer-term structural challenges for many EM countries. This, together with the advent of a Yellen Fed that remains accommodative for longer, could well pave the way for another round of global monetary easing over the next few weeks and months as EM central banks will be able to roll back some of their defensive tightening measures and some DM central banks may try to nurture their recoveries and buy some more insurance against an unwarranted shortfall in inflation, aggravated by potential further dollar weakness.

Fels points to a Friday IIF panel on which Fed governor Jerome Powell described the FOMC's surprise decision not to begin tapering back its quantitative easing program as "a reasonable exercise in risk management." Perhaps policymakers in other jurisdictions are coming around to similar views as well.